Jordanians tighten belts as government increases taxes to combat debt

AMMONNEWS - Mahmoud Issam was supposed to get married in June, but had to delay his plans indefinitely due to the rising cost of living in Jordan.

Mr Issam and his father are the chief breadwinners in their family of eight.

The 23-year-old salesman, who works at a clothes store in Amman, earns a monthly salary of 500 Jordanian dinars (Dh2,590). He allocates JD200 for rent, spending the rest mostly on transportation, cigarettes and mobile cards.

"I postponed the wedding because if I get married, this means that I will not be able to support my family and it is difficult for me to get started from scratch."

As Jordanians grow increasingly concerned about their economic situation, the government last month announced plans to raise taxes to address its budgetary woes and rising public debt, which makes up 95 per cent of the GDP.

The sales tax on certain goods and services is expected to eventually rise to about 16 per cent, while fuel prices increased between 3 and 8 per cent on February 1. These increases will ultimately lead to rising transportation costs and higher prices of food and other essentials, hitting Jordanian households hard.

But prime minister Hani Mulki sought to reassure Jordanians last month, saying "I want to assure citizens that 70 per cent of food items will not be affected by the hikes" and explaining that such measures would not impact lower and middle-income Jordanians.

Since signing a three-year agreement with the IMF last August, the government has been scrambling to find ways to curb spending and generate revenue.

As part of the deal, the kingdom pledged to generate revenues of JD450 million dinars this year, according to the government. In 2018 it needs to generate revenues of JD520m, and in 2019, JD570m. It must also cut public debt to 77 per cent of GDP by 2021.

But economists argue the government is only thinking of short-term solutions that will push more Jordanians towards the poverty line.

"The government is confused. It needs to generate a revenue but does not know where to get it from," said Ahmad Awad, the director of the Amman-based Phenix Centre for Economic and Informatics Studies.

"It is keen to boost economic growth to meet the commitments it has agreed upon with the IMF, but it remains concerned about social pressures."

He said the government needs to implement a progressive tax system to ensure that taxes are collected in a fair manner.

"It also needs to tackle tax evasion which will help it generate almost JD800m annually. But it is not intent on doing so, a result of the lack of rule of law, nepotism and corruption," he added.

Jordan’s economic growth has been shrinking in the past few years as the spillover of violence from Syria and Iraq cut off trade routes, shook investors’ confidence and took its toll on the tourism sector among others.

In the first half of 2016, economic growth dropped to 2.1 per cent compared with 2.2 per cent in the first half of 2015, according to the World Bank.

Unemployment stood at 15.1 per cent in the first three quarters of 2016 averaging 15.1 per cent, the worst in years, while youth unemployment soared to 35.5 per cent in the first three quarters of last year – its highest since 2013.

The prospects of dwindling Gulf aid to Jordan, which has cushioned the country’s faltering economy, is also adding to the government’s woes, even as it grapples with security concerns in the aftermath of a terrorist attack in December that killed at least ten people. Four others were killed two days later during the hunt for suspects.

To curb public spending, the government has announced that there will be no new cars or new furniture for ministries and government agencies. It has also announced a 10 per cent cut in the salaries of senior officials and slashed travel expenses by 50 per cent.

There are concerns within diplomatic circles that tax increases would risk instability as the country tries to strike a delicate balance between economic reforms and social stability.

A poll published by the International Republican Institute on January 30 showed that 71 per cent of Jordanians view the economy as bad.

Already, the measures are igniting resentment on social media.

"Have mercy on the citizens and their pockets," wrote Sondus Halaweh on Twitter.

This sentiment was shared by Hanan Ahmed, a cleaner at a health club in Amman who did not want to give her real name, who said: "In the end, the government will take the money from our pockets."